Unfortunately, it’s all too common for small business owners to make mistakes when they decide to sell their business. Not only can these mistakes lead to leaving money on the negotiating table, but they can also result in the loss of years of long-term investment opportunities. If you’re an entrepreneur, you may know how to build a successful business, but are likely unsure about how to sell a company for the first time.
If you find yourself in this position, you’ll want to ensure that the decisions you make enable you to enjoy the benefits of all the hard work you’ve put into building your business. With the help of a business broker, you can have a successful business sale that matches the success you’ve had as a business owner.
At Murphy Business, we understand the ins and outs of the selling process and are committed to helping our clients make the best sales possible. Read on to learn more about how to sell a company with the guidance of one of our business brokers.
Selling Your Business, Step by Step
If you want to sell your company with no regrets, make sure you don’t skip any of the following steps:
Step 1. Gain a big-picture understanding of the process. Before getting started with a business broker, it’s worth doing some research to understand the process for mergers, acquisitions, and business valuations. While you don’t have to learn how to sell a company completely on your own, you’ll only benefit from putting in time to gain a big-picture understanding of the process you’ll be going through. Key terms to get your head around include the following:
- Offering Memorandum
- Letter of Intent
- Term Sheet
- Due Diligence
Step 2. Give yourself plenty of time to find the right buyer. Selling a business doesn’t happen overnight. If you set an unrealistic deadline for yourself, you may find that you end up selling to the wrong buyer. Simply completing a business valuation and drafting the Offering Memorandum can take a month or two. After a business is on the market, it often takes 6-11 months to be sold. Negotiating a close also requires plenty of time—budget 2-3 months for this important step.
Step 3. Get your financials in order. Prevent red flags from popping up during negotiations by dealing with your financials now. You can enlist the help of an accountant to gather business tax returns for at least the past three years and ensure that all income has been accounted for. As you’ll need to have clean financial statements ready for potential buyers, doing this in advance of listing your business is sure to save stress and complications down the road.
Step 4. Complete a professional business valuation. In order to have a realistic estimate of what your business is actually worth, you’ll need to employ the services of a business appraiser. They’ll create a review of your business that covers a wide range of factors, not just current revenue. The appraiser will consider everything from inventory and assets to outstanding debt, threats, and potential opportunities. With Murphy Business, you’ll have access to professional valuation services that provide an accurate understanding of your business’s value.
Step 5. Prepare an Offering Memorandum. The Offering Memorandum is a full presentation of your business, including operations, staff and management, significant accomplishments, current risks, and financial details. This is the file that potential buyers will be looking at when making the initial decision to seek more information about purchasing your business. Our business brokers will help ensure that your Offering Memorandum is a robust portfolio that will appeal to serious buyers.
Step 6. Focus on the deal, not the selling price. Once you’ve found a buyer, the process moves to the negotiation stage. Many small business owners fall into the trap of setting an unrealistic price tag that brings talks to a standstill and causes buyers to drop out. At this point, it’s crucial to understand that a high selling price isn’t the only benchmark by which a successful sale can be judged. There are other important details to consider, including the overall structure of the agreement, tax treatments, and intangibles. With the guidance of a business broker, you can settle on a deal that leaves you satisfied in the long run, even if the selling price isn’t quite what you’d hoped it would be.
If you’re ready to learn more about how to sell a company for the first time, Murphy Business can help. Don’t hesitate to call (888) 561-3243 today to speak with a business broker near you.